George E. Sebring Co. v. O'rourke

• Decision Date: 13 February 1931
• Citation: 134 So. 556,101 Fla. 885
• Parties: GEORGE E. SEBRING CO. et al. v. O'ROURKE et al.
• Court: Florida Supreme Court

134 So. 556

101 Fla. 885

GEORGE E. SEBRING CO. et al. v. O'ROURKE et al.

Florida Supreme Court

February 13, 1931

Supplemental Opinion May 4, 1931.

Commissioners' Decision.

Suit by J. C. O'Rourke and others against the George E. Sebring Company and others. From orders overruling general and special demurrers to the bill, defendants appeal.

Reversed. Appeal from Circuit Court, Highlands County; W J. Barker, judge.

COUNSEL

Haskins Gregory & Gordon, of Sebring, for appellants.

Davis &amp Pepper, of Perry, for appellees.

OPINION

ANDREWS C.

Appellees, as complainants below, filed their bill in the circuit court of Highlands county on December 27, 1928, against appellants for the purpose of setting aside certain deeds and mortgages of real estate made by George E. Sebring Company for the alleged purpose of preventing complainants from realizing on certain indebtedness aggregating $100,000, evidenced by certain promissory notes secured by a mortgage dated July 25, 1927, maturing over a period of ten years. The bill alleges that none of said notes of complainants have been paid and only the first semiannual interest due January 25, 1928, was paid; that the notes due July 5, 1928, being in default, the acceleration clause in the mortgage securing them was invoked for the purpose of maturing the remainder of the notes; and that suit at law was brought on the notes.

It is further alleged that after the making of the said mortgage and notes by George E. Sebring Company to complainants and before any default in payment, the said company executed the said deeds and mortgages which complainants allege to be fraudulent and now seek to set aside, in that they were made for the purpose of defeating a recovery upon complainants' notes. The bill alleges that one of the mortgages was made by George E. Sebring Company to the Penn-Florida Cattle Company on February 11, 1928, but not filed for record until November 6, 1928; that there was executed to the Lake Jackson Company another mortgage deed on August 15, 1928, which was not recorded until November 6, 1928; that there was executed to the Lake Jackson Company another mortgage deed on August 15, 1928, but not recorded until November 6, 1928; that deeds were made to the Highlands Security Corporation covering other property on October 4, 1928, and recorded October 23, 1928. It is not alleged that any of said conveyances covered the same, or any, parcels of land included in complainants' mortgage.

Appellants filed separate general and special demurrers attacking the bill as bad in substance and insufficient because it seeks to set aside alleged fraudulent conveyances without showing that complainants' claims have been reduced to judgment, and that no injury to complainants is shown to have resulted from any action on the part of the respective defendants. The chancellor overruled the demurrers from which the appellants took appeal.

The principal question involved is one of procedure. Appellants insist that in this state the obtaining of a judgment against the debtor is a condition precedent to the filing of a bill against such debtor the sole purpose of which is to set aside alleged fraudulent conveyances; or expressed in another way: May a creditor, such as one holding a note secured by a mortgage on real estate, without reducing his claim to judgment, maintain a bill in equity for the sole purpose of setting aside a fraudulent conveyance made by his debtor?

The bill does not allege that at the time complainants filed their bill they occupied the position of judgment creditors nor that they held any lien upon the parcels of land alleged to have been fraudulently conveyed. In other words, as to such property not covered by complainants' mortgage, the complainants occupy the status of a mortgagee holding notes secured by a mortgage upon other property than that alleged to have been fraudulently conveyed. The withholding of a conveyance from record does not of itself render it fraudulent as to creditors, but it may be considered with all the facts attending the transaction. Dova v. Hancock, 88 Fla. 503, 102 So. 646.

It appears from the bill that the pleaders invoked the provisions of section 5771, Compiled General Laws of Florida 1927, which declares certain conveyances void when made to delay, hinder, or defraud creditors of their just and lawful action, debts, or demands. Appellants contend that the pleaders also undertook to invoke the provisions of section 5035, Compiled General Laws of Florida 1927, which, referring to 'Creditors' Bills,' reads as follows:

'A creditors' bill may be filed in the courts of this State, having chancery jurisdiction, before the claims of indebtedness of the persons filing the same shall have been reduced to judgment, but no such bill shall be entertained by such court, unless the complainants therein shall have first instituted suits in the proper courts at law for the collection of their claims; and no final decree shall be entered upon such creditors' bill until such claims shall have been reduced to judgment.'

The rule in this state prior to the enactment in 1903 of [101 Fla. 891] the above statute was that before a creditor could resort to his remedy by 'creditor's bill,' he must first secure judgment at law and exhaust all means afforded by the law to recover upon an execution based upon such judgment. Armour Fertilizer Works v. First Nat. Bank, 87 Fla. 436, 100 So. 362; Scott v. Neely, 140 U.S. 106, 11 S.Ct. 712, 35 L.Ed. 358. In the first case above cited, this court held that a creditor's bill is one brought by a creditor who has secured judgment at law and has in vain attempted at law to obtain satisfaction and who sues in equity for the purpose of reaching property in which defendant in execution has only an 'equitable title,' and which cannot be reached by an 'execution at law.' See 1 Bouv. Law Dict. 726; R. C. L. 6, § 5. In the same case it was also held that 'the nature, purpose, and scope of a creditors' bill is to bring into exercise the equitable powers of the court to enforce the satisfaction of a judgment by means of an equitable execution, because execution at law cannot be had.'

The conclusion is that it was the intent of the above-quoted statute to permit a 'creditor's bill' to be filed to reach 'equitable assets' before reducing creditor's claim to a judgment, provided an action at law has been at the time brought for that purpose, and that no final decree can be properly entered on the creditor's bill until such action at law shall have been reduced to judgment. See Adam Brewing Co. v. Bowman, 92 Fla. 509, 109 So. 583.

Complainants' bill in effect was to reach lands to which said company actually 'had title' but on which it had executed mortgages on part and given deeds on part after the execution of the notes and mortgage to appellees.

The legal title to property involved in a fraudulent conveyance, so far as the judgment creditor is concerned, may never pass from the grantor, by virtue of said section 5771, Compiled General Laws of Florida 1927, which declares void all conveyances made to defraud creditors. Balsley v. Union Cypress Co., 92 Fla. 706, 110 So. 263, and cases there cited.

If the 'legal estate' never left George E. Sebring Co. by reason of the conveyances being fraudulent, the 'legal' title is still subject to any execution obtained on the notes. While a 'creditor's bill' as such may not be entertained in this State unless there is a suit at law then pending, however, such requirement is not made a condition precedent to filing a bill to set aside a fraudulent conveyance of lands to which debtor had 'legal title,' when brought by a judgment creditor. The appellees alleged that suit had been brought against George E. Sebring Company for the principal and interest on the notes made payable July 5, 1928, which were past due and unpaid; that said suit is pending and undetermined in the circuit court of Taylor county; in fact, the bill appears to have been drawn with special reference to said section 5035, Compiled General Laws of Florida 1927.

In the well-considered case of Balsley v. Union Cypress Co., 92 Fla. 706, 110 So. 263, 264, this court approved the following principles:

'A judgment creditor has the right to treat an attempted transfer of property to which the judgment debtor had the legal title as a nullity, and to sell the property so conveyed under execution, as though no transfer by connivance had been made, but the existence of such remedy at law does not interfere with the right to resort to a court of equity for the vacation of the fraudulent conveyance as an obstacle in the way of the full enforcement of the judgment, and to remove a cloud on the title to the property; fraud being one of the recognized subjects and most ancient foundation for equity jurisdiction.' (Italics ours.)

It was also there held that:

'Where a judgment creditor seeks by bill in equity to set aside an alleged fraudulent conveyance and subject the property therein attempted to be conveyed to his judgment, if the judgment debtor had only an equitable title to such property it is necessary to exhaust the legal remedies and have a return nulla bona upon execution, before filing such bill in equity, but it is otherwise where the judgment debtor had legal title and fraudulently conveyed the same.' (Italics ours.)

In other words, in the instant case a nulla bona on execution is not a prerequisite to filing such bill. Entry of judgment is required.

The above is cited and approved in the more recent case of Punta Gorda State Bank v. Wilder, 93 Fla. 301, 112 So. 569, 571, in which it is stated that this distinction between 'equitable title' and 'legal title' is the 'very gist of the cause now before ...